Article

Prior History: Williams Serv. Grp., LLC v. Nat'l Union Fire Ins Co. of Pittsburgh, NO. 1:09-CV-832-TWT, 2011 U.S. Dist. LEXIS 142325 (N.D. Ga. Dec. 17, 2011) [USA]; Williams Serv. Grp., LLC v. Nat'l Union Fire Ins Co. of Pittsburgh, 2011 U.S. Dist. LEXIS 65828 (N.D. Ga. June 17, 2011) [USA], noted in 2012 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 550.

Note: Williams Service Group, LLC (Employer) entered into over 45 employee compensation and general liability policies (Program Agreements) with National Union Fire Insurance Company of Pittsburgh and three other insurers (Insurers) covering the years 1990 to 1997. The Program Agreements provided that Insurers would pay the initial costs of resolving claims against Employer, and then Employer would reimburse Insurers for their expenditures including administrative costs for investigating and defending claims. The Program Agreements also required Insurers to invoice Employers monthly. To secure its payment obligations, Employer/Applicant provided Insurers/Beneficiaries with two standby letters of credit for USD 1 million and USD 1.2 million.

In 1995, Employer and Insurers entered into a buyout agreement by which Insurers agreed to pay up to USD 4.2 million for claims against the policies under the Program Agreements and Employer would reimburse Insurers for payments made above that amount. Insurers surpassed the payment cap by USD 1,850,572 but did not bill Employer on a monthly basis as required by the Program Agreements.

Employer/Applicant sued Insurers/Beneficiaries in Georgia state court for a declaratory judgment that Insurers owed it USD 548,471 in overpayments that Employer made under another set of insurance policies, a temporary restraining order to prevent Insurers/Beneficiaries from drawing on the standbys, and two other claims. The state court granted the temporary restraining order, and Insurers/Beneficiaries removed the case to the federal district court, which lifted the temporary restraining order. Insurers/Beneficiaries counterclaimed, seeking declaratory judgment that Employer/Applicant owed them USD 1,850,572 for claims paid in excess of the payment cap under the buyout agreement and that Insurers/Beneficiaries were permitted to draw on the standbys to recover that amount, among other claims. Both parties moved for summary judgment. The U.S. District Court for the Northern District of Georgia, Thrash, J., granted in part and denied in part both motions, ruling that Insurers/Beneficiaries were not permitted to draw on the standbys. The trial court also determined that Insurers/Beneficiaries were entitled to payment for some unpaid claims, but found others to be time-barred. On appeal, the U.S. Court of Appeals for the Eleventh Circuit, Tjoflat, Carnes, and Jordan, JJ., in a per curiam decision, affirmed in part, vacated in part, and remanded.

Employer/Applicant argued that Insurers/Beneficiaries' failure to send monthly invoices as required by the Program Agreements constituted, alternatively, (1) a waiver of their right to collect on amounts owed by Employer/Applicant, (2) "a material breach that excused [Employer/Applicant]'s performance", or (3) "a condition precedent to its payment obligation". The appellate court ruled that the first and third arguments were not supported in the plain language of the Program Agreements. Regarding the second argument, the appellate court held that the failure to provide monthly invoices "was merely incidental to the 'main purpose' of the program agreements" and "not a material breach that excuses [Employer/Applicant's] reimbursement obligation."

The appellate court also ruled that "the statute of limitations does not bar [Insurers/Beneficiaries] from drawing on the letters of credit", reasoning that "[Insurers/Beneficiaries]' right to draw on the letters of credit is not dependent on their ability to successfully bring a breach of contract action under the program agreements. By their terms, the letters of credit are clean and unconditional - the [Insurers/Beneficiariesf]' right to draw on them is independent of the program agreements."

Furthermore, the appellate court ruled that the Georgia statute of limitations relied on by the District Court "operates to bar only judicial remedies", and that "[d]rawing on a letter of credit ... is a non-judicial remedy." As such, the statute of limitations was inapplicable.

[JDC/dm]

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